If you live in a planned community that has covenants, you most likely have to pay monthly Homeowners' Association (HOA) fees and, at times, special assessments—often collectively referred to as “assessments.”

Understanding How HOAs Work

An HOA has a board of directors. Each year, the board will come up with a budget for the community that includes how much each unit or household will be charged as a monthly HOA fee during the year. (Learn more about homeowners’ associations in our article Homeowners' Associations (HOAs) and CC&Rs.)

Monthly Fees

Generally, the monthly HOA fee consists of two parts:

• An amount to cover current year operations. Part of the monthly fee will be designated to pay for current year operations, which typically includes things such as landscaping, snow removal, pool maintenance, insurance, and water.

• An amount that goes into reserves. The remaining portion of the monthly fee is placed into reserves for long-term repairs and replacements, like paying for a new roof for the community center or a new road, or to cover the cost of building additional parking lots. Having ample reserves ensures that the HOA has money available to pay for high-cost repairs when they come due.

So long as the HOA board is able to accurately predict which repairs will come due and when, the monthly dues should cover the current operating expenses as well as long-term repairs.

Special Assessments

But the board’s predictions are not always accurate. Occasionally, the HOA might need to come up with funds in excess of the money raised by the monthly fees. In that case, the board usually has the authority to impose a special assessment to cover the one-time expense of a major repair or improvement.

Reasons Why the Monthly Dues Might Fall Short of Covering Expenses

There are several possible reasons why the monthly fees might not provide enough to the reserves to cover long-term repairs. For example:

• the monthly operating expenses might be higher than expected
• some homeowners might not pay their monthly HOA dues, or
• there could be an unexpected catastrophe or natural disaster that causes damage not covered by insurance.

HOA Liens and Foreclosure

Most HOAs have the power to place a lien on the homeowner’s property if he or she doesn’t pay the monthly dues and/or any special assessments. Once the HOA has a lien on a homeowner’s property, it may foreclose on that lien as permitted by the CC&Rs and pursuant to state law. (Learn more in Nolo’s article HOA Liens & Foreclosures: An Overview.)

Talk to an Attorney

If you're facing a foreclosure due to unpaid HOA assessments, consider talking to a foreclosure attorney in your state to discuss all legal options available in your particular circumstances.